Loss of 30 free hours will cost me £37,000 of pre-tax income

[ChildcareCost]

9 month olds are eligible for 30 free hours from September. If you earn over the threshold, you do not get this 30 free hours plus the £2,000 of tax-free childcare.

My nursery typically charges £2,150 a month for an under-3. This works out at c. £10 an hour assuming a 50 hour week (open 8-6).

They have circulated the free hours schedule this week, and the monthly cost with 30 free hours is £1,100 hours for an under-3 (noting funded hours only cover 38 weeks).

This means the loss of the 30 free hours will cost me £12,600 a year. Plus of course the loss of tax-free childcare at £2,000.

So, I need to earn an extra £14,600 net just to cover the cost of not being eligible for this scheme.

To earn that £14,600 over £100,000 – I need to earn a gross figure of £137,000.

Surely this is not fair on the parents excluded from the scheme? It doesn't seem proportional that I need to earn an extra £37,000 just to recoup the loss as a result of not being eligible!

Gaaah! Look, imagine the OP and 9 other MNers are on a night out. They pay into a kitty for drinks according to their means. Because the OP earns a lot they put in £110, because the other 9 earn average wage they put in £10 each. Then when they get to the first bar the other 9 say 'actually OP, because you're earning a lot you can't use the kitty and will have to pay for your drinks on top'. I think most people would see that as clearly unfair. The point is - and it's a very simple one but one that many on here are nevertheless bending over backwards to ignore - THE OP IS 'THE TAXPAYER' - far more so than the vast majority of people having a go at her.

OP, I earned around your salary when I used childcare. I didn't get very many free hours, but I appreciate the situation is now changing. I would in no way have begrudged this policy, and I don't think it genuinely creates the type of disincentives you describe for people in your position.

If you are earning £160K working full time it is likely that you are career-orientated and want to progress. The sad reality of most jobs that pay that well is that you are much less likely to progress if you work part-time. So most people in this position will take what is a pretty short term hit (assuming 2 kids, 4.5 years, or 6.5 years if you count over 3s, although you presumably get 15 hours at that point) because it is far outweighed by the long term gain.

This is of course a bit different if you earn just over the threshold. I'm sure many people in that position will plough more into their pension. But that will be a tiny number compared to the whole and overall I am certain that the long-term incentives will mean that a cut-off at £100K is a financially sensible number from a government revenue perspective.

Re: the £198K household point, there are all sorts of reasons (of which I'm sure you're aware) for not using household income to deprive women in particular of financial benefits in their name.

I am immensely fortunate to have natural skills that are valued by society, which enable me to earn a lot of money. I did nothing to deserve those skills. I absolutely think I should be subsidising people who are not so lucky. I didn't make the rules, but I massively benefit from them. Sure, I work hard, but that is my choice, which brings me a fantastic financial reward. Lots of other people work hard too, for a pittance.

Tax revenue aside for a moment, it would be better for your child.

Well - I think I’m starting question why I’m funding social benefits like childcare support for 95% of parents but being excluded from it myself.

Why am I paying so much to support the very vast majority others, but then being told I’m excluded myself and must fund services privately?

That doesn’t seem like a very good deal.

You and me both mate! We funded our child care ourselves without moaning about not getting enough benefits on top of our £199,000 income!

Get yourself a minimum wage job with minimal hours and universal credit then 80% of childcare will be paid for. Sorted!

I completely agree that it is a really bad system but people are too envious or too stupid to understand why. A system that encourages people to not go for promotion, to work part time, to keep out of a higher tax bracket, to pay more into their pensions rather than spending more and therefore improving the economy, is not great for the country. I don’t have nursery age children so it has no impact on me, but right now surely we need people earning lots, spending lots growing the economy and creating jobs. If that doesn’t happen the tax money will not be going into the government coffers and no one will be getting any help with childcare.

For everyone who thinks people like OP should just earn less and be more like them, where do you think the money for their ‘free’ child care actually comes from?

It’s not new. The 100K cliff has been implemented a while ago, for personal allowance tapering and child tax credits

free nursery hours were introduced gradually; even 4 years ago people earning over 100K weren’t eligible for any free hours until kids were 3? Because there were some very limited free hours for under 3s or something.

now the government expanded these “free” hours for more ages but the cliff of 100K remains

another issue is the government subsidy isn’t actually covering real cost of these “free” hours so nurseries are forced to hike bills for those who pay not via these free hours, so people not getting any are being screwed

It's not a good deal for you and it should be universal. But because you're a high earner you're never allowed to question anything ever. Just be grateful for the tax bill 🙏

Magic money tree

You’ve fallen into the trap of comparing headline salary rates rather than actual cash received.

If you ignore pensions contributions the 160k earner takes home 8k per month. The 80k household with 2 children takes home 5.4k assuming equal split of earnings between parents.

The 80k household also gets funded nursery hours, tax free childcare and child benefit. Those 3 combined will be roughly 20k pa meaning the net monthly income for the 80k household is over 7k.

This scenario neatly encapsulates the problem.

Household A has 160k income and takes home 8k

Household B has 80k income and takes home 7k

But you ate again, missing the point.

With no childcare provision for anyone… the incentives are different.

By providing generous childcare subsidies that are removed at a cliff edge, the government has created very significant incentives for higher earners to work less, pay less tax etc. - as they may still end up better off overall.

That is irrational of the tax system.

I'm not on minimum wage.
I've never claimed benefits.
DH did, briefly, when he was made redundant - for about 2 months to cover his NI contributions the £60 per week didn't go far.

My knots are only in knitting wool or embroidery thread, thanks.

Well you're just a couple of pennies over £137K, so I wouldn't worry too much.

In fact - and I have just checked this - the amount you earn over £137K equates to a full-time income for someone earning minimum wage. Just think about that for a second.

But you're not going to reduce your income to £35,000.

You might make changes to your hours or your pension, and frankly I don't care what those are.

But you are not going to lose all that lovely income. You'd have to lose your lovely holidays or your nice car or the great restaurant you go to sometimes.

This argument that you have to pay £x,000 and therefore you have to earn more than twice that in order to "break even", is ridiculous. Childcare costs money. Some people are eligible for a rebate. You're not. It is an expense. You could ask their dad to be a stay at home dad and you don't have to pay it. Or he earns around the same/more than you in which case you are even more well off than you're saying.

Or you could decide to pay a childminder or a nanny. In that case would you think it unfair that you don't get the rebate?
And quite frankly, why don't you go out and earn that extra cash? Or get a side hustle? Passive income?
Maybe go on OnlyFans?
You have options:

1. Earn more
2. Reduce your expenditure
3. Do all the sophisticated tax and pension planning you talk about.

You are wealthy. There is a cutoff. Unfortunately you're above it. Get over it.

It makes me puke. The rich get richer and milk the system.

I'm a net contributor and it's a short term hit. Yes, it's hard but you're in an amazing position compared to most people in uk. Dd is past needing childcare and I'm closer to the end of my working years than the start and feel very fortunate to be looking forward to a reasonable retirement.

OP, I am with you (not in earnings but in sentiment)
It is really annoying that you are funding other people's childcare, pay for yours and work very hard.
But your income will go up and stay with you for years, childcare is only 4 years.

It's nice to read a sensible response. They are few and far between on this thread.

Whether or not you believe childcare support should be universal (and personally I don't, I think it should be tapered from around £80k income per household), a tax system which actively disincentivises people from working more and seeking promotions while their children are small is not a good one. You don't want all your GPs and hospital consultants suddenly doing 3 day weeks.

So many people are so hung up on the £160k that they've disengaged their brains.

Here’s a similar argument OP.

I earn minimum wage - £12 something an hour. I went to the supermarket to buy some groceries and it cost me £25. It’s unfair that I have to work for 2 hours to afford to buy those groceries. It’s not fair that someone who earns £160k a year would only have to work for 20 minutes to earn enough to buy the groceries.

I feel the thread has derailed massively. The point is disincentive to work and earn the additional amount above the threshold, which suggests a poor tax system design. I think OP expresses confusion rather than complains.

People respond to incentives (Economics 101). Anyone with income around the threshold of losing benefits would “manage” it somehow. This applies to people of all income levels and across many kinds of benefits / tax breaks. Those who expect high earners to voluntarily pay even more in taxes or lose financial benefits are not being realistic. Countries run on proper incentive design, not altruism.

No it’s only on mumsnet that anyone would not think this was anything other than sensible. Plus in the future as pensioners people will be self sufficient, which is a gain for the ‘low paid workers’ in the long term.

I agree with you. I dont understand why you cant salary sacrifice though? Say you earn 165k can you salary sacrifice 70k and take yourself to 95k? 60k would be tax free pension savings and then 10k would be taxed pension saving - is that not possible?

I work with a few people who earn around the £100k threshold, and yeah I can completely see how it seems unfair at that level - at a salary of £99k you can get all the childcare benefits, but earn £101k and you immediately lose c.£15k of benefits per year. So your net income effectively decreases. The obvious route is to bang the extra in your pension so you stay below the £100k threshold. But as you say OP - once you earn above £137k, that issue goes away, and your net income starts to increase again. So I'm not quite sure why you are complaining on a salary of 'above' £160k?

It's right there's a cutoff somewhere - I don't feel that sympathetic to someone who earns so much.

But you could move to Scotland as everyone gets free hours from age 3? No funded hours before then. Or perhaps you can find a cheaper childminder?